Ontario publishes amendments to cap-and-trade regulation to implement link with California and Québec and extend ETS cap to 2030

On 28 November 2017, Ontario has published final amendments to its cap-and-trade regulation in order to enable the linking of its cap-and-trade program with the programs of California and Québec. The three jurisdictions have agreed on linking their cap-and-trade programs, effective on 1 January 2018. California, Québec, and Ontario will hold quarterly joint allowance auctions with the first auction being scheduled for 21 February 2018. A combined total of 334.5 million allowances will be offered for sale for the year 2018, and 49.7 million allowances will be offered for sale in an advance auction for the year 2021.

Besides implementing the link to Québec and California, the amendments finalizing the Ontario cap-and-trade regulation also establish emissions caps for Ontario for the period 2021-2030. The cap is set to decline linearly by 2.9% each year from around 124.7 million tCO2e in 2020 to 88.5 million tCO2e in 2030. This is set in line with Ontario’s emission target of a 37% reduction compared to 1990 given the assumed emission trajectory for sectors not under the cap. Holding and purchase limits are expanded to account for the size of the larger linked market. The amendments further aim to provide fair and equitable treatment of program participants and to improve program efficiency through administrative changes. This includes modifications to rules and deadlines for distributing allowances for free and changes to requirements for market participants’ emission verification reports. The Ontario Ministry of Environment and Climate Change plans further amendments to the regulation in 2018, which would enable offset credits from California to be used for compliance already before the true-up period in 2021, on condition that any invalidated credits would be replaced.

Together, Ontario, California and Québec will be by far the largest carbon market in North America, covering the US’ second largest state (after Texas) and Canada’s second and third largest provinces (after Alberta) in terms of emissions.